Industry insight: Driving business in the climate change space

  • One of the most important risks facing society is climate change

One of the most important risks facing society is climate change.

Despite this, many businesses are sitting on their hands, unsure what they should be doing to protect their operations against this threat. It's an unwise response. A more appropriate one is to start to make a realistic assessment of the potential for climate change impacts to disrupt operations.

One business doing this successfully is Munich Re, one of the world's largest reinsurance businesses. The company is necessarily concerned with climate change: weather events brought on by climate change often result in insurance policies being triggered and payouts being made to policy holders, so it is in its interest to be proactive about managing climate change risks.

Dr Martina Linnenluecke, a senior lecturer and expert in sustainability at UQ Business School, says that often the trigger for companies to start to address climate change is when they realise there are environmental changes to which they have not had to respond previously.

"In some sectors there has been a huge increase in awareness around the shift away from fossil fuels to renewable energy," Dr Linnenluecke says. "That's a common avenue for companies to initially think about what climate change means for their business."

One way Munich Re does this is through the work of its asset manager, MUNICH ERGO AssetManagement (MEAM), which manages more than $298 billion in assets worldwide for Munich Re. While the business has been considering climate change impacts for 40 years, in 2002 it took concrete steps to embed this into its operations by ensuring its equity and bond investments meet sustainability guidelines. It does this, for instance, by benchmarking these investments against appropriate measures such as the MSCI Global Sustainability Indices.

MEAM has also made $2.23 billion in renewable energy investments as a response to climate change. These include solar parks in Spain and Italy, wind farms across Europe, as well as an investment in the German national gas grid.

Munich Re is also heavily involved in developing macro, countrywide insurance solutions, as well as micro solutions for individuals. These are able to deliver insurance coverage across a large population for weather-related climate change events relatively quickly.

But Munich Re is the exception rather than the rule when it comes to climate change. Many businesses recognise this is a problem they must face, but so far most have been slow to take action to protect themselves.

To be successful, climate change initiatives must be driven by the leadership team. Dr Linnenluecke says their first responsibility is to assess the climate change impacts to which the company is exposed.

"But that will depend on the sector," she says. "For instance, temperature change and heat waves are a concern for agricultural businesses. Sea level rises could be a concern for companies located close to the coast. Tourism businesses near the Great Barrier Reef could be thinking about implementing a plan to tackle the issue."

The next step is to identify priority areas, acknowledging every business has scarce resources and tackling climate change requires ongoing focus.

Says Dr Linnenluecke: "It comes down to identifying the most pressing issue and what the business wants to achieve. Ideally, companies should think about how their efforts fit into regional climate change planning initiatives."

In the Great Barrier Reef example, tourism operators can adapt by offering tours away from coral areas. At the same time they could link to government strategies and regional planning initiatives beyond organisational boundaries.

So how can businesses ensure they are sensitive to climate change? Dr Linnenluecke says that will depend on the existing culture. "Companies that are already innovating are much more open to responding to new environmental threats and opportunities. Companies that engage with the science have a better understanding of climate impacts."

While it's important to understand that climate change is a potential threat for every business, it also produces opportunities. Dr Linnenluecke says this comes down to minimising impacts, especially in sectors that are highly exposed, such as agriculture. "We have seen some very good initiatives such as drought resistance initiatives and breeding programs in the cattle industry to make livestock more resilient. Innovation is really important."

There are many opportunities for business to embrace climate change and there are commercial advantages associated with being a leader in this space few businesses can ignore. The onus is on managers to start acting now to begin capturing these benefits.

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